Thursday, December 13, 2012

Senior Citizens Discount 3: Sharing of Mandatory Discounts on Medicines of Senior Citizens

Republic Act (RA) 9994 or the Expanded Senior Citizens Act of 2010 provides for these new benefits to resident citizens of the Philippines who are 60 years old and above:


"SEC. 4. Privileges for the Senior Citizens. -
The senior citizens shall be entitled to the following:

"(a) the grant of twenty percent (20%) discount and exemption from the value -added tax (VAT), if applicable, on the sale of the following goods and services from all establishments, for the exclusive use and enjoyment or availment of the senior citizen


"(1) on the purchase of medicines, including the purchase of influenza and pnuemococcal vaccines, and such other essential medical supplies, accessories and equipment to be determined by the Department of Health (DOH).
"The DOH shall establish guidelines and mechanism of compulsory rebates in the sharing of burden of discounts among retailers, manufacturers and distributors, taking into consideration their respective margins;

"(2) on the professional fees of attending physician/s in all private hospitals, medical facilities, outpatient clinics and home health care services;

"(3) on the professional fees of licensed professional health providing home health care services as endorsed by private hospitals or employed through home health care employment agencies;

"(4) on medical and dental services, diagnostic and laboratory fees in all private hospitals, medical facilities, outpatient clinics, and home health care services, in accordance with the rules and regulations to be issued by the DOH, in coordination with the Philippine Health Insurance Corporation (PhilHealth);...

While there is not much confusion or conflict in the discounts in professional fees of healthcare professionals, there is confusion and even conflict among the various players in the medicines sub-sector, in particular among drug manufacturers, distributors, importers/exporters, wholesalers, retailers, and hospital pharmacies.

The Department of Health (DOH) has requested members of the Advisory Council (AC) on the Implementation of RA 9502 (Cheaper Medicines Law of 2008) for their comments of the draft DOH Circular that will soon be issued by the DOH Secretary. Below is my letter to them which I sent by email yesterday.
-----------

12 December 2012

Dr. Madeleine de Rosas-Valera
Chair, Advisory Council for RA 9502
Assistant Secretary
Department of Health

Dear Doc Madz,

Here are our comments to the draft Department Circular, “Clarification on Certain Provisions of Administrative Order No. 2010-0032” regarding RA 9994 or the Expanded Senior Citizens Act of 2010.

1. Definitions of Wholesaler, Retailer, Distributor, Manufacturer and so on, we agree with the definitions given.

2. On the sharing of the 20 percent mandatory discount to senior citizens, the 30-70 percent burden sharing to retailers-manufacturer/distributor/wholesaler looks fair.

It is assumed that whatever burden sharing should apply after the new Department Circular has been issued and not apply retroactively.

As an outside observer and not part of the major players – the drug manufacturers, distributors, retailers and so on – it is pathetic to see how these players were forced to debate among themselves who should get the bigger burden while government burden in the form of tax credits or loss carry over is not clear. Each of these players is doing its share in giving patients and consumers have access to quality and affordable medicines. That alone is an important social function or public service already..

An enterprise that is forced and coerced by the government to give discounts to certain group of consumers will attempt to survive and not go bankrupt. There are many ways to do this.

One is to stop selling those medicines and products that are highly demanded by the senior citizens. This is happening already in some small and independent drugstores in rural areas which have little leeway for further price discounts as they do not have the economies of scale. 


Two, raise further the regular price of those medicines demanded by the senior citizens so that after the 20 percent mandatory discount, the price simply goes back to its original level and thus, not suffer a loss.

Three, raise the price of other medicines and products demanded by the non-senior citizens. In effect they subsidize the price discount given to the senior citizens. This situation can be illustrated by this graph.




If there was no price distortion like RA 9994, the “equilibrium price” (P*) of a particular medicine will be at point A, With the law, the new price with mandatory discount (Pmd) will be at point B, lower or cheaper than point A. In order to prevent losses, an enterprise (retailer, wholesaler, manufacturer, etc.) will hike the price (Ph) of  medicines to point C. So a 20 percent discount at point C will only bring back the original price at point A while giving the illusion to patients that they are buying at point B. Or senior citizens pay at point B while non-senior citizens suffer even higher prices at point C.


The only way to correct this injustice is to scrap that law, but since this is impossible at the moment, let this situation serve as additional lesson, that government price regulations and forcible, mandatory price discount, produce more harm than good.

Thank you very much.

Sincerely yours,


Bienvenido “Nonoy” Oplas, Jr.
President
Minimal Government Thinkers, Inc.
---------



2 comments:

leonila ocampo said...

Thanks for this Nonoy at di ako nag-iisa sa laban na ito. I had suibmitted the numerical computation of what will happen to the retailers if amendment as requested by other players in the industry is followed by the government. Am thankful too, that Doc Madz listens to the comments of everyone in order to release a fair and objective decision; THANK YOU VERY MUCH DOC MADZ, I SALUTE YOUR BRAVENESS and OBJECTIVITY.
Drug price regulation or expanding he MDRP list, as had always been my personal and the PPhA POSITION, THIS WILL NOT HELP. The first list did not give the expected result; no increase in the number of users which means only the regular users of the SKUs in the list benefits from the initiative and those who have NOT used said medicines continue not to avail of them even at 50 or 70% price reduction because in the first place, these people do not have the money to buy the medicines. Other ways to improve medicine access must be explored BUT THIS MUST BE DONE WITHOUT JEOPARDIZING THE MEDICINES QUALITY. We are open to help how this will be done.

Anonymous said...

“An enterprise that is forced and coerced by the government to give discounts to certain group of consumers will attempt to survive and not go bankrupt. There are many ways to do this.

One is to stop selling those medicines and products that are highly demanded by the senior citizens. This is happening already in some small and independent drugstores in rural areas which have little leeway for further price discounts as they do not have the economies of scale.”

As a small independent drugstore in the province, I would like to add… that the senior citizens law is being EFFECTIVELY USED by the giant chain drugstores as a LOYALTY and PREDATORY pricing program. Since they have the advantage of the “economies of scale”, they can easily “force and coerce” the drug distributors to subsidize this “expense discount” or else they will not buy. Because of this reason, the giant chain drugstores capture more or less 100% of the sales from senior citizens, without spending a penny! Unfortunately (also) for the small independent botikas… this not only means LOST SALES from the seniors, but they also loss the LOYALTY and PATRONAGE of the very influential sector in the local community! A double whammy!